In a recent television appearance, ServiceNow’s Chief Executive Bill McDermott delivered a striking prediction. He suggested that AI agents could drive unemployment among university graduates above 30% in the coming years. The notable context for this statement is that McDermott was describing the potential impact of the very technology his own company provides.
A Double-Edged Sword of Automation
McDermott elaborated that ServiceNow’s platform has already automated approximately 90% of customer service use cases previously handled by human employees. He simultaneously emphasized that corporations could maintain their current workforce while still boosting revenue and free cash flow, attributing this to rising per-employee productivity. This presents a dual narrative: significant disruption for the labor market paired with substantial efficiency gains for corporate clients.
For perspective, the Federal Reserve Bank of New York recently reported the unemployment rate for recent graduates at 5.7%, with an underemployment rate of 42.5%. This indicates a job market for degree holders that is already under considerable strain.
Strong Financial Performance Contrasts with Share Price Weakness
The current situation presents a paradox. ServiceNow reported powerful fourth-quarter 2025 results, with revenue reaching $3.57 billion and earnings per share coming in at $0.92, both exceeding market expectations. Subscription revenues grew 19.5% to $3.47 billion, while free cash flow surged 34% to $4.6 billion. Looking ahead to 2026, management provided a subscription revenue forecast ranging from $15.53 billion to $15.57 billion, alongside a projected operating margin of 32%.
Despite this robust financial picture, the company’s shares have declined 18% since the start of the year. The stock is trading roughly 42% below its 52-week high of $208.94, recorded in July 2025. A key concern among investors is whether rising competition in the AI sector could dampen medium-term growth for a firm that markets AI as a core product.
Should investors sell immediately? Or is it worth buying ServiceNow?
Some analysts, like those at investment bank Jefferies, view this market valuation as an overreaction, considering ServiceNow an unfairly penalized stock. The institutional ownership rate stands near 88%, a signal that major investors have not yet abandoned the investment thesis.
Strategic Acquisition Aims to Capture Cybersecurity Growth
Alongside the broader AI discussion, ServiceNow is actively pursuing expansion. The company has agreed to acquire cybersecurity specialist Armis for $7.75 billion in cash. This marks ServiceNow’s largest acquisition to date and its fourth in the security sector within a single year. Pending shareholder and regulatory approvals, the transaction is expected to close in the second half of 2026.
Company statements indicate the Armis deal will more than triple the addressable market for ServiceNow’s security and risk products. Global information security spending is estimated to hit $240 billion in 2026, representing a 12.5% year-over-year increase.
On the AI front, ServiceNow’s Now Assist product has achieved an annual contract value of $600 million, a figure the company aims to double during 2026. Whether the current share price adequately reflects this growth potential or continues to discount it will become clearer with the next set of quarterly results, expected for the first quarter of 2026.
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